Polish Journal of Management Studies
 ISSN 2081-7452
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Abstracts > Vol 5

Uzoechi Nwagbara

Budgets are important instruments for organisational management, control and planning. Following the urgency of contemporary business challenges and radical shift in business structure owing to global financial volatility, there is a growing need to rethink budgeting. Also, factors such as increasing shareholders’ expectations, impact of new technology, knowledge economy, innovation and other organisational integers have impacted on how managers think of firms in relation to budgeting. Given the limitations posed by traditional budgeting system as well as the urgency of recent global financial meltdown, there is pressure on managers and leaders to devise other ways to effectively manage organisations for productivity and competitiveness. In this paper, the Balanced Scorecard model will be used as an alternative method to traditional budgeting system. Consequently, the major concern of this paper is to articulate the limitations of (traditional) budgeting in relation to the Balanced Scorecard (BSC) method as well as in the context of what Hope and Fraser (2003) called ‘‘Beyond Budgeting’’ schema for more effective ways of managing organisations in the 21st century. The dilemma of ‘‘annual performance trap’’ is also implicated in this light. As budget restricts innovative, fluid and value-generating ways of managing organisations through its instrumentality of control and mechanistic co-ordination, troubled or distressed organisations are struggling to leverage on their opportunities. This adversely affects productivity levels.

Keywords: Balanced Scorecard; Budgeting; Global Financial Crisis; Organisational Performance.
JEL Codes: M40, C65, F30


Budgeting highlights a comprehensive plan of projected financial inflows and outflows over a future period of time. It is a system that facilitates the process of managers concentrating on exploiting as well as appropriating opportunities instead of treading on financial and organisational minefields. Stressing the significance of budgeting, Umapathy in his book, Current Budgeting Practices in US Industry: The State of the Art (1987), declared that ‘‘there is no other managerial process that translates qualitative mission statements and corporate strategies into action plans, links the short-term with the long-term, brings together managers from different hierarchical levels and from different functional areas, and at the same time provides continuity by the sheer regularity of the process’’ (p. xxii) than budgeting. In the same vein, budgeting is about a process of profit planning and control as well as a method of making sure organisations minimise losses. Thus, budgeting entails establishing entrepreneurial objectives, developing blueprints about the financial environment in which they are to be achieved, choosing a course of action regarding accomplishing set objectives, commencing activities essential to bringing organisational plans into fruition and current plan to avoid or correct deficiencies (Welsch et al, 1988). It is to this end that D. C. Danuletiu (2010) in his piece, ‘‘Fiscal Decentralisation and issues of Municipal Bonds: The Case of Romania’’ indicated that ‘‘budget should be the centrepiece of a thoughtful, on-going decision-making process for allocating resources and setting priorities and direction’’ (p. 70).
Further to this, according to Horngren et al (2000), ‘‘few businesses plan to fail, but many that collapse failed to plan’’. This shows that budgeting is vital to success of businesses. Thus, a business organisation that fails to engage in budgeting would be at risk, hence, such business would not have the foresight to spot potential business problems. Also, in specifying the significance of budgeting in terms of organisational performance and financial management, Barsky & Bremser (1999) argue that
‘‘traditionally, financial budgets have served as the primary
internal metric of performance… Budgeting has traditionally served as high profile process in organisations. Resource allocation decision, performance target setting and spending limitations have been the primary focus of corporate budgeting process’’ (p. 3).
In corroborating the above, Pineno (2009) contends that ‘‘basically, budget can be used as a benchmark that allows managers to compare actual performance with expected or desired performance’’ (p. 120). Having established the implications as well as imports of budgeting, we shall at this juncture look at the relevance of budgeting in the context of the recent global economic recession by assessing its suitability and relevance in 21st century financial (accounting) system for organisational growth and productivity.
In his piece, ‘‘Budgeting Gamesmanship’’ published in Academy of Management Executive, Bart (1988) articulated part of the dilemma managers as well as leaders face as they are trapped in annual performance ritual that limits innovation, competitiveness, creativity and productivity. Bart’s (1988) suggestion goes a long way in situating the complexities of traditional budgeting in terms of business success. It is however a means by which companies get an idea of how well to run companies as well as how to measure companies’ performance. This process entails a measurement of how companies are meeting their income goals, ensuring how organisations meet their expenses in accordance with predicted levels and how to control organisations financially. The practice of budgeting essentially involves an oscillation, which moves between estimates of workable performance and goals of desirable performance (Emmanuel et al, 1990; Man & Dima, 2010). Although when administered ‘‘in good time’’, budgets facilitate resource allocation, financial control, coordination and planning.
Beyond this, budget has been criticised following the realities of global economic meltdown as well as vagaries that buffet organisations in recent time. Contemporarily, there is need to consider putting back confidence into investors, employees and customers in order to gear up for competition in the recent volatile financial and business environment. The global financial crisis, which the former US Federal Reserve Chairman, Alan Greenspan, once described as ‘‘once-in-a-century credit tsunami’’ has threatened the foundation of financial activities as well as organisational performance in the world over. Avgoules (2008) stresses the root cause of global economic paralysis, which resonates with budgetary impropriety as well as crash in housing market, unsecured loan approval, lack of corporate governance and diminished ethical leadership and corruption, among other variables.
The erstwhile Greek Prime Minister, George Papandreou’s statement corroborates this position: ‘‘corruption, cronyism, clientelistic (sic) politics, a lot of money was wasted basically through these types of practices’’ (Williams, 2010) as well as budgeting constraints. Since the global financial crisis affected virtually all business transactions around the globe especially the financial industry, the need to rethink budgeting is crucial. Accordingly,
‘‘the global financial crisis led to the deterioration of government budgets and finances as nations utilised public expenditures to provide stability and stimulus … Greece’s budget deficit reached 15%, Ireland’s was 14.3%, Spain’s was 11.2%, Portugal’s was 9.3%
and Italy’s 5.3% of the GDP in 2009…’’ (Sandoval et al., 2011, p. 3-4).
The incidence as well as restrictive dynamics of budgeting in recent time made the US Commission co-chair, Erskine Bowles, to alert the world of this financial cancer ‘‘that will destroy our country [the world] from within’’ (My parenthesis; Balz, 2010) if not tackled. Thus, the realities of the present have necessitated a reconsideration of the suitability of budgeting in the 21st century.

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Budgeting plays very crucial roles as a framework for organisational planning, control, coordination and management. It is in the main, a central aspect of financial management in organisations. Thus, the essential aim of budgeting is to co-ordinate, plan, control, and for the foremost part, manage organisations for business growth and competitive advantage. However, in the wake of the urgency of the 21 st century management as well as recent global financial meltdown, the traditional budgeting system that sustains the advantages of budgeting is being reconsidered by financial management experts, leaders, managers and business practitioners. This change in the way (traditional) budgeting was being considered has spawned a groundswell of ideas and approaches in accounting and financial management which now see budgeting as being a system that resides in the past; a method not fit for the 21 st century. However, while budgeting practice has frequently been criticised in the accounting literature, there have been calls for a re-examination of the criticism levelled against this practice. Thus, even though this system has its disadvantages, it could be a meaningful method of managing organisations. Nevertheless, as this paper proposes, the attractions of budgeting need be transcended for better managed organisations in the contemporary period.


Abstrakt: Budżety są ważnymi instrumentami zarządzania organizacyjnego, kontroli i planowania. Podążając za współczesnymi wyzwaniami gospodarczymi i radykalną zmianą struktury gospodarczej, spowodowanej zmiennością światowych rynków finansowych, występuje coraz większa potrzeba ponownego przemyślenia budżetu. Także, czynniki takie jak zwiększone oczekiwania akcjonariuszy, wpływ nowych technologii, gospodarka oparta na wiedzy, innowacje i inne czynniki organizacyjne, wpłynęły na to jak menadżerowie myślą o firmach w relacji do budżetowania. Ze względu na ograniczenia stawiane przez tradycyjny system budżetowania jak również ze względu na ostatnią, finansową zapaść globalną, występuje nacisk na menedżerów i liderów aby opracowali oni inne sposoby efektywnego zarządzania organizacjami w zakresie produktywności i konkurencyjności. W niniejszym artykule użyty został model Zrównoważonej Karty Wyników jako alternatywnej metody w stosunku do tradycyjnego systemu budżetowania. W związku z tym, głównym problemem tego artykułu jest wyrażenie ograniczeń (tradycyjnego) budżetowania w stosunku do Zrównoważonej Karty Wyników, jak również w kontekście tego co, jak Hope i Fraser (2003) nazwał schematem „Poza budżetowaniem” dla bardziej efektywnych sposobów zarządzania organizacjami w 21 wieku. Dylemat „pułapki rocznej wydajności” także został zamieszczony w niniejszym artykule. Jak budżet ogranicza innowacyjność, wpływa i generuje wartość sposobów zarządzania organizacjami poprzez instrumenty kontroli i mechanicznej koordynacji. To wszystko negatywnie wpływa na poziom produktywności.

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